Totally pretend week

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Bits

Our contention last year was that in the era of AI digital intelligence would not want to use government currency. This latest software deployment isn’t proof of that but it is a step along the way.

To begin with, it uses something called an MCP Server (some good explanations here). My less detailed version is it gives AI access to specific programs and allows it to use them in a controlled way. There is an MCP Server for Google Drive for example, which lets an AI look for files but stops it running rampant (which it might do with uncontrolled access).

In the example below, two new MCP servers are deployed. One called sherlockdomains. It is the first ever domain name search tool for AI agents, it lets your AI go and search for specific domains for your project and returns suggestions to you. Quite fun to play with. 

The second in the list below is FewSats. This server that allows you to make payments with bitcoin (and to be fair, credit cards too) with your AI.

The whole flow of the process is very slick once configured. The machine simply finds the URL, pays for it with bitcoin, installs the website on github, does most of the DNS integration and away you go. 

If you watch his entire video (which as I write currently has 1 view, me) you might think, that is far from straight forward. I’d agree but the point is that relatively complex tasks are being broken down into more simple steps. It was once somebody’s job to buy the domains, somebody else configured them, a different person then organised the payment. You can see where all this is going. The fact it has one solitary view on YouTube also tells me that people have absolutely no idea what is going on behind the scenes. 

Complex technical roles are being abstracted away. It shows up in the numbers too. In Australia 484,000 new jobs were created in 2024. Only 99,000 were in the private market sector. 80% of job creation was in either the public sector or non-market sectors, both of which depend on government-funding for employment generation. 

Just a ledger

Quite the speech from perhaps the most controversial performance of the moment. Some would say, it's the talk of a crazy person. “Infinite abundance of all things, everyone can have everything they want at any time” type talk. As far as the deployment of technology goes, this kind of talk is not new but it still annoys people

Really though, there couldn’t be anything remarkable about saying things that people do agree with. Anyone with something meaningfully different to say must at some point be considered a crazy person. Here’s another one of the Tesla name:

Nikola Tesla has a whole slew of crazy from a century ago that seems a bit less crazy now. Elon will probably follow in his footsteps. 

“Money is just a database for resource allocation”  

“only those things with scarcity will really matter”

“Money is just a database”. I often think about this one because it surprises me that so few people realise the whole concept is pretend. It started off less pretend of course because banks and governments had to operate with some physical backing (gold in the day), which forced discipline on them and also meant that the system was more than just a database. They got rid of that though, preferring something that is just entirely made up. Straightforwardly, just a database of numbers that the issuer can change whenever they wish. So much so in fact, that the world is now convinced that devaluing the units of the pretend system by 2% per year is “ideal”. An extraordinary achievement. 

Any cursory glance at the facts would tell people that money is indeed just a database and is pretend. It would equally tell people that only really scarce things matter. 

A case in point. In 2017 Mohammed Bin Salman spent $450 million on this painting of Christ. Since he isn’t a Christian, one can safely assume he did so because it is scarce. 

I’m not saying buy bitcoin. I’m not saying buy pictures of Christ. I am saying that the biggest rip off of all time is government issued money. It won’t survive the next 100 years because there will be better ledgers on which to reference value, that have absolute scarcity built in. 

Crazy people seem to know this already. 

Unused Savings

“We’ll turn private savings into much needed investments.” There is of course lots to unpack in these statements. First of all, private savings would tend to imply that the money belongs to the private citizens of Europe. Presumably they have made an assessment of risk and decided that saving the money is a superior option to deploying it. Those reasons might be that investments in Europe tend to be in 18th century windmill technology which citizens are declining to support with their own capital. 

The EU went further still though, with an official press release about the €10 trillion in “unused savings”. 

We did cover some weeks back that Europe was going to have to find new and innovative ways to fund its remilitarisation. They have not tried that hard though, simply looking at the pool of money people have saved and said “great, we’ll use that”. I expected a stealthier plan. 

Of course, there is no such thing as “unused savings”. That statement can only be true for an individual, or entity. You might have ‘unused savings’ but an economy doesn’t. The money you have in the bank has been rehypothecated 10 times over, there are almost no circumstances in which it is unused. 

Ursula’s statement is a simple one. We are just going to take your money and spend it on guns. For her honesty, she has gone up in my estimation.

Stable coins

The Federal Stable Coin bill is currently making its way through the US Senate. There are some key features here that will matter. 

1. Only Permitted Issuers will be allowed to run USD Stablecoins. 

Presumably then existing issuers are going to have to apply and comply (including Tether). It will be important, given its size, that Tether gets into the club. The presence of their CEO in Washington last week suggests to me they will. 

2. Rehypothecation is not permitted

The most interesting feature of the proposal. Most of the current financial system is rehypothecated. In theory the strongest and safest assets will now be stable coins. In fact they will be materially stronger as assets than cash in the bank because on the whole they will be 1:1 backed by US Treasuries and not rehypothecated (i.e. pledged as collateral elsewhere). This point alone explains why banks are so violently opposed to this legislation. 

The paid champion of US Banking, Elizabeth Warren continued her crusade against them on the basis that they will threaten the financial system. Her argument is terrible, since it applies one hundred fold to the banking system she claims to represent. The fact is that these assets just might shine a light on how relatively unsafe some other assets out there are. As a bank, with a 0% reserve requirement, how do you compete with an asset that has a 100% reserve requirement? Most people don’t understand this yet but it won’t take too many disasters before they do.  

3. US States will be allowed to issue coins provided they follow Federal legislation

Interesting simply because it will introduce competition. Is Texas_USD better than Florida_USD? It’s rather like the olden days of private banking where the money you issued had to be the best or your bank would not survive. It sounds ridiculous today to suggest banks should in fact compete for survival, they have become state backed vassals, but this is exactly how it should be. 

Whether all components make it to the final form of the Bill remains to be seen but it is moving along. So far it has emerged from the committee stage of the Senate, goes to a full Senate vote and is far from certain to pass and then must go back to the House of Representatives.

Imagine for a moment that it does pass. USD Stable coins are going to be very close to the concept of Central Bank issued digital currencies. The US is ardently (at least under the new regime) against CBDC’s but what is the difference really? Conceptually, if a central bank issues a digital currency rather than a retail bank, it cannot even theoretically default. With 100% asset backing the same is true of a stable coin.

We may well end up in a situation here where the US blesses privately run, but Federally overseen stablecoins while Europe comes up with its own centrally managed and regulated CBDC equivalent. It seems obvious to me what the market will prefer. The hierarchy of immediately liquid assets will likely cascade as follows:

1. USD Stablecoins

2. Actual dollars

3. Euro CBDCs

4. Actual Euros

When the Euro first launched it was touted as a credible challenger to the dollar. The economies (back then) were of equivalent size. Europe had some attractive components at the time, like very sophisticated financial markets, mainly out of London. It seems remarkable that very little has been learned and once again Europe will release the overregulated, less liquid and generally inferior product. 

Euro-Trash

Big week for Euro-admin. Stats on the European economy were presented by everyone’s favourite PowerPoint man, Philip Lane. First of all, 25 pages of extremely detailed numbers saying that things aren’t so good. He followed up with a 100+ pages of slides on the Euro-economy. I wonder how long this takes and who it benefits? Keep in mind that every country in Europe has its own Treasury doing the same thing. Legions of what must be intelligent, competent people doing slides for each other. 

There was data analysis and regressions, an array of PhD type persons on the stage and yet, when Lagarde introduced the whole thing she chose to focus on this slide. 

Indeed the EU social media machine has piled in behind the theme. You might remember “Putin’s inflation” a few years back which, after the EU printed trillions of dollars out to thin air they pointed to for their own administrative failures. 

Now it’s the same again, Europe is struggling because of “Trade Policy uncertainty”. Indeed the graph is remarkable. Look how steeply it rises everyone! In fact it is based on an automated search of The Guardian, The LA Times, NY Time, WSJ and Washington Post. It counts the number of times those publications discuss trade. The more they do so the more the graph rises.  

In a week then when the EU released every possible statistic available to them from across the continent their entire focus is a chart of articles in the US press? You can expect more of this. I have no doubt that the Trump Tariffs will hurt Europe a lot (notably Germany). Perhaps they are right to get on the front foot, but what are they doing about it? 

What’s the course of action? It's just excuse after excuse.. 

The totally pretend chart is now everywhere in EU publications, like a disease. Propaganda is a real thing you know. 

Further information

Our February 2025 report to investors can be found here.